Uh-huh, “government doesn’t create jobs”… so, what might be the explanation for the number of companies who have not sought business from Clark County (Las Vegas, NV) before, now becoming interested in all manner of contracts for “paving, construction, and repair?” [LVSun] Those who advocated injections of capital via government funding for infrastructure projects have been right all along. For many construction firms, struggling with declining work in the wake of the Housing Bubble, the government is the employer of last resort.

“Nevada’s construction industry has been hit harder than any other. Expect employment in this sector to continue to decline so long as the new housing market remains weak, and demand for new commercial development remains dormant. Adding to the construction industry’s woes this year is the expected completion of the Ruby Pipeline and Galena Creek Bridge. While massive losses like those seen during the worst of the recession are not expected, employment will still decline by 0.3% in 2011, .05% in 2012, and .03% in 2013. Total employment will decrease by about 600 jobs for the forecast period.”

In The Shadows

And, the new housing market is weak, in no small part because of Nevada’s shadow inventory:

“From the onset of the foreclosure crisis, four states have continually had relatively worse foreclosure problems: Arizona, California, Florida and Nevada. These four states still account for 42 percent of the foreclosure inventory today.” [NAR]

The situation in Nevada isn’t good, but it may not be quite as completely bleak as the foreclosure numbers might suggest. A tiny ray of light:

“Arizona and Nevada, while still ranking among top 25 states, are faring relatively better in terms of the shadow inventory. This is largely due to their shadow inventory moving somewhat faster through the pipe lines and comprising larger share of existing sales. While distressed sales comprise 55 percent of existing sales in Arizona, they are up to almost 70 percent in Nevada.” [NAR]

Before we become totally enamored of this analysis by the National Association of Realtors, it should be noted that theirs is a tiny ray of sunshine in an otherwise rather bleak landscape for the construction sector.

The highly optimistic conclusion that the shadow inventory in Nevada could be cleared in seven months assumed that the rate of foreclosures would decline, and the number of homes added to the inventory would at least remain stable. Unfortunately, however quickly the inventory was “moving through the pipeline” last March, Nevada still has those 53,265 homes foreclosed as of October 2011, and 1 of every 118 properties received a foreclosure filing as of September 2011. [realtytrac] The shadow inventory continues to put a drag on the Nevada housing market, and by extension the construction sector.

Underwater

“Negative equity” isn’t helping either. There’s good and bad news in this area as well. On the positive side, Nevada may benefit from the Obama Administration’s revisions to HARP, or HARP 2.0:

“Time will reveal the true impacts of HARP 2.0, but it is certain that many more borrowers will benefit than would have otherwise,” CoreLogic wrote in its report. “The impacts will be targeted to housing markets and local economies that are the hardest hit by the housing collapse, as these are the markets with the largest shares of insufficient and negative equity borrowers.” [HousingWire][…]

“Florida and Nevada, two of the states with the highest levels of homeowners in negative equity, stand to gain disproportionately compared to stronger markets. Nevada and Florida rank 1st and 3rd for the highest levels of negative equity, 60% and 45% respectively, and account for 2.3 million, 21%, of the underwater mortgages nationally.” [HousingWire]

Again, it should be noted that HARP 2.0 isn’t a panacea for Nevada’s housing market doldrums. The purpose of the program is to staunch the flow of new units into the shadow inventory by allowing homeowners whose payments are current to refinance at lower interest rates. The revised mortgages can replace adjustable rate or interest-only original mortgages with fixed rate ones.

There are some things, however, that HARP 2.0 doesn’t do. First, it doesn’t “make” the bankers participate. Although four major banks have agreed to join the effort, their participation in voluntary and there’s nothing in the structure to prevent the banks from including some of their own “rules.”

Secondly, it doesn’t address renegotiation of the principal. In this respect, HARP 2.0 helps homeowners tread water, but doesn’t alleviate the central problem — that the house isn’t worth nearly as much as the mortgage.

Third, the program is not available to those who took on “Pick A Payment” (option adjustable rate mortgages) or subprime loans. [ChiTrib]

Homegrown Help

Nevada’s foreclosure issues may be alleviated by the passage of AB 284, which makes “it a felony if a mortgage servicer or trustee made false representations concerning a title. There also will be a $5,000 fine assessed if fraud, such as robo-signing, is detected. The new law requires servicers to provide a new affidavit that provides the amount due on the mortgage, who is in possession of the note and who has the authority to foreclose.” [HousingWire] The rationale for the bill is explained in the testimony to the Assembly Judiciary Committee, March 31, 2011 (pdf). (1)

And now, we’re back to the Im-MERS-ion problem. The bankers’ efforts to privatize and replace the traditional real estate recording system with their high speed electronic MERS version — to speed up the process such that the mortgages could be more quickly processed into “financial products” — backfired all over everyone. The MERS “problem” is just now entering the courts. (2)

There are some reasons for cautious optimism in regard to the Nevada construction sector IF (a) the efforts of the Nevada Attorney General and State Legislature are successful in staunching the flow of fraudulent foreclosures into the shadow inventory; (b) the efforts of the State Legislature successfully address short sale issues and “double dipping,” and (c) States like Delaware, New York, and Texas are successful in clearing out the mess made by the bankers’ MERS project. While these efforts address properties going into the pipeline, they do not alleviate the “underwater” issues Nevada homeowners are currently facing.

Resolution

The bankers’ lobby would like to turn the phrase “judicial resolution” into a pejorative. However, the “underwater” problem will continue to be a drag on the construction and real estate sectors in Nevada, Arizona, California, and Florida until some action can be taken either legislatively or judicially to allow for the modification of principal portion of home loans.

Notes:

(1) Three pieces of legislation from the last session may assist Nevada homeowners, see AFC – LM. See SB 414 (pdf) and AB 273 (pdf) and AB284 (pdf) as enrolled.